The UK’s biggest banks are no longer ‘too big to fail’ and could foot the bill for their own bankruptcies, the Bank of England said, but it found shortcomings at three banks, including HSBC and Lloyds .
Fourteen years after the financial crisis which threatened to collapse the banking system and led to huge taxpayer bailouts, the Bank of England’s first public assessment of lenders‘ ‘living wills’ has revealed that although a major UK lender went bankrupt, customers could access their accounts, and banks could generally provide services as usual.
He also determined that shareholders and investors rather than taxpayers would be on the front line to cover banks’ losses and ensure they had enough capital to operate.
However, the Bank warned there were “still more improvements to be made” by some of the biggest banks to avoid the chaos that followed the 2008 financial crisis, which forced the UK government to spend £137bn. pounds of taxpayers’ money to stabilize the banking sector. system.
He said three lenders – HSBC, Lloyds and Standard Chartered – needed to address shortcomings that could otherwise “unnecessarily complicate” their ability to fail safely. Each of the three lenders were found to lack adequate financial resources or appropriate data and measures to ensure they can absorb losses without putting public money at risk.
Concerns have also been raised about whether HSBC could properly restructure the business to ensure services are still provided while authorities help cut the lender. Standard Chartered has also been singled out for not identifying all the restructuring options available to it.
Lloyds said it was already working to improve its ability to forecast and measure its financial resources, and HSBC said it was working with regulators to address Bank of England concerns. Standard Chartered said it had set aside dedicated funding to ensure it was ready for an orderly liquidation, saying that work was a “priority” for the bank.
Lenders will have until 2024 – the date of the next assessment – to close the gaps. The assessment covered eight major banks in total, including Barclays, Nationwide, NatWest, Santander UK and Virgin Money UK.
Dave Ramsden, Deputy Governor of the Bank of England, said the exercise was a central part of the UK’s response to the global financial crisis and “demonstrates how the UK has overcome the problem of ‘too big’ to fail “”.
He said: “Major UK banks will need to address the outstanding actions identified as part of the Bank’s assessment and keep their preparations ready, tested over time, and confident that they will be used when needed.”
The process is part of the UK’s efforts to prevent similar problems that led to the banking crisis of 2007-2008, when the threat of a series of bank failures forced Western governments to spend billions of pounds to prevent lenders to collapse and send the world’s economy into a tailspin.
The crisis accelerated after Lehman Brothers was cleared of bankruptcy in September 2008 after running out of cash to pay bills when banks stopped lending money to each other. The ensuing panic triggered the worst global recession since before World War II.
The US was forced to find a buyer for brokerage firm Bear Stearns, while the UK government nationalized Northern Rock and spent £45bn and £20.3bn of taxpayers’ money to bail out Royal Bank of Scotland and Lloyds respectively.
“In 2007-2008 the UK did not have such a resolution regime and it instead left two choices when some banks got into trouble: let the banks fail and cause huge disruption, or bail them out with the taxpayers’ money,” Ramsden said.
However, he admitted that “no matter how prepared, the resolution is always likely to be complex to execute. Maintaining a credible and effective resolution regime that is responsive and ready to use is an ongoing process.